N583

PAPUA NEW GUINEA
[NATIONAL COURT OF JUSTICE]

CHEONG SUPERMARKET PTY LTD

V

PERY MURO TRADING AS GIGIDU TRADE STORE

AND

NEW GUINEA COCOA (EXPORT) CO PTY LTD TRADING AS PNG HARDWARE SUPPLIERS

AND

INTERTEX PATTERNS LTD

V

BOUGAINVILLE ENTERPRISES PTY LTD

Waigani
Bredmeyer J
30 March 1987
3 April 1987

INTEREST - Award of on debt or liquidated sum - Statutory provision for - Award within discretion of court - Principles upon which exercised - Claim "as of right" - Claim under Act - Judicial Proceedings (Interest on Debts and Damages) Act, (Ch No 52), ss 1, 21.

PRACTICE AND PROCEDURE - Judgment by default - Interest on - Claim for debt or liquidated demand - Statutory provision for interest - Award within discretion of Court - Principles upon which exercised - Claim "as of right" - Claim under Act - Judicial Proceedings (Interest on Debts and Damages) Act, (Ch No 52), ss 1, 22.

The Judicial Proceedings (Interest on Debts and Damages) Act (Ch No 52), s 1, provides that the Court may order "... interest at such rate as it thinks proper, on the whole or part of the debt... or for the whole or part of the period between the date on which the cause of action arose and the date of the judgment".

Held

The Judicial Proceedings (Interest on Debts and Damages) Act (Ch No 52), (the Act), confers a fourfold discretion on the Court:

- whether to grant interest at all,

- to fix the rate,

- to grant it on the whole or part of the debt, and

- to fix the period for which interest can run.

That discretion is to be exercised in respect of judgments by default in accordance with the following principles:

(a) A party intending to apply for interest on a debt or liquidated sum should show on the writ the claim for interest and the grounds of the claim, that is, whether "as of right" under s 2 or generally under s 1 of the Act.

(b) Where interest is claimed "as of right" under a contract, judgment by default may be entered for the debt plus interest provided adequate details are endorsed on the writ. In the absence of adequate details, interlocutory judgment for "interest to be assessed" may be entered.

(c) Where interest is claimed generally under s 1 of the Act, judgment by default may be entered as a final judgment for the debt and as an interlocutory judgment for the interest to be assessed.

(d) The Court should normally award interest at 8 per cent on the whole of the debt from the date of issue of the writ to the date of judgment.

(e) Interest on the judgment and the unpaid costs runs from the date of judgment pursuant to s 3 of the Act, at the prescribed rate of 8 per cent per annum.

(f) Because the entry of judgment terminates a debt and transforms it to a judgment debt, where interest is claimed "as of right" under a contract or agreement, that agreed rate of interest applies to the date of entry of judgment only, unless the Court otherwise orders.

Cases Cited

Fewings, Ex parte; In re Sneyd (1883) 25 Ch D 338.
Pinzger v Bougainville Copper Ltd [1985] PNGLR 160.
Post & Telecommunication Corporation v Takoa Pastoral Co Pty Ltd [1985] PNGLR 44.
Riches v Westminster Bank Ltd [1943] 2 All ER 725.
Smeeton v Davara House Pty Ltd [1979] PNGLR 324.

Counsel

N S Roberts, for each plaintiff.
Cur adv vult

3 April 1987

BREDMEYER J: Three motions are before me for the assessment of interest on default judgments. It is convenient to deal with the three matters in the one judgment.

The statute which provides for interest is the Judicial Proceedings (Interest on Debts and Damages) Act (Ch No 52) which reads:

1. Interest on certain debts and damages

Subject to Section 2, in proceedings in a court for the recovery of a debt or damages the court may order that there be included in the sum for which judgment is given interest, at such rate as it thinks proper, on the whole or part of the debt or damages for the whole or part of the period between the date on which the cause of action arose and the date of the judgment.

2. Interest on interest, etc

Nothing in Section:

(a) authorizes the awarding of interest on interest; or

(b) applies in relation to a debt on which interest is payable as of right, whether under an agreement or otherwise; or

(c) affects the damages recoverable for the dishonour of a bill of exchange.

3. Interest on debt under judgment or order

(1) Subject to Subsections (2) and (3), where judgment is given or an order is made for the payment of money, interest shall, unless the Court otherwise orders, be payable at the prescribed rate from the date when the judgment or order takes effect on such of the money as is from time to time unpaid.

(2) Where, in proceedings on a common law claim, the Court directs the entry of judgment for damages and the damages are paid within 21 days after the date of the direction, interest on the judgment debt shall not be payable under Subsection (1) unless the Court otherwise orders.

(3) Where, in proceedings for damages on a common law claim, the Court makes an order for the payment of costs and the costs are paid within 21 days after the ascertainment of the amount of the costs by taxation or otherwise, interest on the costs shall not be payable under Subsection (1) unless the Court otherwise orders."

Section 1 and 2 were formerly s 42 of the Law Reform (Miscellaneous Provisions) Act 1962. That section commenced: "Subject to the next succeeding subsection, in proceedings tried in a court for the recovery of a debt or damages...." The word "tried" has been omitted in our current section. That section was taken from s 3 of the Law Reform (Miscellaneous Provisions) Act 1934 (UK) which existed in that form until changed by s 22 of the Administration of Justice Act 1969. Section 3 of our Ch No 52 was added by an amendment No 4 of 1983.

In addition to the statute, the National Court Rules, O 12, r 6, is relevant and it reads:

"6. Interest

(1) Where the court directs the entry of judgment for the payment of interest under the Judicial Proceedings (Interest on Debts and Damages) Act, Ch No 52, interest shall, unless the order otherwise provides, be payable on so much only of the money as is from time to time unpaid.

(2) The rate of interest for the purposes of the last preceding sub-rule is eight per cent yearly."

The interest payable under the Act on damages, in particular damages for personal injuries, has been determined by the Supreme Court in Pinzger v Bougainville Copper Ltd [1985] PNGLR 160. I am here concerned with interest on a debt or liquidated sum.

I refer to two local cases on interest on a debt. In Smeeton v Davara House Pty Ltd [1979] PNGLR 324 the plaintiff sued for K11,970 unpaid architect’s fees plus interest at the rate of 13 per cent per annum from the date the account for fees was rendered until the date of judgment pursuant to s 42(1) of the Law Reform (Miscellaneous Provisions) Act 1962. The Registrar entered a default judgment for K11,970 fees, plus K3,760 interest. On an application by the defendant to set aside the default judgment Saldanha J held that the award of interest was irregular and could not stand. There was no agreement to pay interest on the unpaid architect’s fees and the action had not been "tried" in the court. The entry of a default judgment was not a trial of the action as required by s 42. The defendant deposed that there was a defence on the merits, and the judge set aside the whole judgment on the condition that the sum of K11,970 be paid into court.

Post & Telecommunication Corporation v Takoa Pastoral Co Pty Ltd [1985] PNGLR 44 was a similar case which came before McDermott J again on an application to set aside a return of a deposit paid under a contract of sale plus interest on the said sum pursuant to the provisions of the Judicial Proceedings (Interest on Debts and Damages) Act (Ch No 52). The plaintiff recovered a default judgment for K80,000 plus interest on the debt from the date of filing the statement of claim to the date of judgment. The interest was K806.58.

McDermott J set aside the award of interest because there was no agreement to pay interest and the court had not awarded it. The award was made by the Registrar in entering the default judgment. Section 1 of Judicial Proceedings (Interest on Debts and Damages) Act (Ch No 52) provides "that the court may order... interest, at such rate as it thinks proper, on the whole or part of the debt... for the whole or part of the period between the date on which the cause of action arose and the date of the judgment". It is only the court which can award interest and the "court" referred to in the section is a judge not the Registrar. McDermott J, set aside the award of interest as irregular but allowed the default judgment for K80,000 to stand. Thus he severed the bad or irregular part of the judgment from the good. Clearly he was right in setting aside the award of interest. The section confers a four-fold discretion on the judge: whether to grant interest at all, to fix the rate, to grant it on the whole or part of the debt, and to fix the period for which interest can run. That discretion is not given to the Registrar.

I will attempt to state the law in the following principles:

1. The writ should show the claim for interest and the grounds of the claim

This is a natural justice requirement of special importance when the writ can result in a judgment for interest by default where the defendant is not heard. An old English case Riches v Westminster Bank Ltd [1943] 2 All ER 725, which says that interest under the Act need not be pleaded, is not good law and should not be followed. That case was a trial, not a default judgment. It was an action for damages against the judicial trustees of a testator. The plaintiff succeeded in his claim and gained an award of interest under the Law Reform (Miscellaneous Provisions) Act 1934 (UK) although he had not claimed interest in the pleadings nor sought to amend them. The correct course, in my view, in an action which goes to trial is to claim interest under the Act in the writ or statement of claim. If the plaintiff forgets to do so he should apply for an amendment to claim interest, and the amendment would normally be granted because the defendant is unlikely to be prejudiced by it. The amendment would not normally require the defendant to produce evidence on interest. It would simply require him to address argument on interest.

Where interest is claimed in the writ it should be pleaded in one of two ways. The writ should state whether interest is claimed "as of right" (see s 2(b)), which would normally be under an agreement to pay, or whether it is claimed under s 1 of the Act. Section 1 need not be mentioned expressly. A claim in the form "and the plaintiff claims interest under the provisions of the Judicial Proceedings (Interest on Debts and Damages) Act (Ch No 52)" is adequate notice to the defendant that interest is claimed under the Act — and not under any agreement. The form of claim for interest will determine the consequences which flow.

2. Where interest is claimed under a contract a default judgment will be entered for the debt plus interest

The claim should give adequate details of the interest claimed, the basis for it, the rate and the period concerned. This kind of endorsement should be common on bank loans and bills of exchange. When sufficient details are given in the claim, the Registrar can enter a default judgment for the interest as well as the debt claimed. It is the specific agreement to pay interest which takes the claim away from s 1 of the Act because of the exceptions of s 2(b) and (c). It should not be necessary for the Registrar to require proof of the interest, eg by sighting the loan agreement.

When the endorsement claims interest under a contract but gives inadequate details, the Registrar will have no alternative but to enter final judgment for the debt plus interlocutory judgment "for interest to be assessed", and the plaintiff will have to produce the agreement to a judge so that interest can be assessed.

3. Where interest is claimed generally under the Act the default judgment will be entered as a final judgment for the debt and as an interlocutory judgment for the interest to be assessed

This follows from s 1 of the Act and my discussion above. Only the court can assess interest under the section in the exercise of its discretion. How should courts exercise that discretion? It is a statutory power. It has nothing to do with the common law. At common law interest is not payable on a debt in the absence of some contract express or implied, or mercantile usage.

4. The court should normally award interest at 8 per cent on the whole of the debt from the date of issue of the writ to the date of judgment.

I consider that there are good policy reasons why the courts should invariably award interest on debts. We live in a time of inflation. A man who buys goods on credit, for example, does not pay, is sued, and does not pay before judgment is entered, is enjoying the use of the plaintiffs money for some time. When he does pay, he is paying a bit less because of inflation. Then, secondly, it is a fact of life that many firms which supply goods and services operate on an overdraft. They pay interest on the money they borrow. It seems only fair that tardy and recalcitrant debtors should also pay interest. I consider that this Court, as a matter of course, should award interest under s 1 of the Act on debts.

What should be the rate and for what period should interest run? I think the rate should be 8 per cent. That is the standard rate we chose in 1983 in O 12, r 6. That rule is wide enough in its terms to apply to pre- and post-judgment debts. Interest should not run from the date of the cause of action. Take for example, goods supplied, payment to be made within 30 days. No payment is made. It could be said that the cause of action arose then. On the other hand, it may be common usage for the debtor to be given another month or two to pay before he is threatened with a writ. It seems unfair to award interest for months two and three when, if the creditor had paid, then there would have been no interest.

I consider that interest should run from the date of issue of the writ. This date has the advantage that it is easily ascertainable. I know that the issue of a writ is not a demand on the defendant, because he may not be served with it for a time, indeed for some considerable time, nevertheless it marks the end of the period of grace granted by the creditor. The issue of the writ is not a demand on the defendant but I believe that in the vast majority of cases a demand to pay has already been made. Often several demands have been made. It is common practice to send a letter of demand before suing and often that is preceded by one or more requests or reminders to pay.

5. After judgment interest runs on the judgment debt plus costs at 8 per cent per annum.

Interest runs on the judgment debt by s 3 of the Act "unless the court otherwise orders" at the prescribed rate. The prescribed rate is fixed by O 12, r 6, at 8 per cent per annum. By s 2 of the Act interest cannot be awarded on interest. Thus if the judgment is for K10,000 plus interest of K800, interest post-judgment under s 3 runs only on the principal sum of K10,000.

By s 3 of the Act interest runs on so much of the money as is from time to time unpaid. Subsections (2) and (3) of s 3 give the judgment debtor a 21 day period of grace. If he pays the judgment debt awarded and/or the costs within 21 days of the entry of judgment, interest is not payable unless the court otherwise provides. If, however, he fails to pay up within that period, interest runs from the date of entry of the judgment.

The judgment debt includes costs. This is implied from s 3(3). If the costs are paid within 21 days "interest on the costs shall not be payable under Subsection 1...". It is also the rule in England. Interest can only run on costs which are fixed because the principle is that interest can only run on a payment wrongfully withheld, and a "payment cannot be wrongfully withheld until a party knows what he has to pay", 37 Halsbury (4th ed), par 753, and 26 Halsbury (4th ed), par 553.

The interest flowing on a judgment debt under s 3 is automatic. The judgment creditor does not have to apply to have it awarded or assessed.

6. Any contractual rate of interest pre-judgment terminates on the entry of judgment unless the court otherwise orders.

If a debtor has contractually agreed under say a bank loan to pay interest at 15 per cent, that rate terminates on entry of judgment, Ex parte Fewings; In re Sneyd (1883) 25 Ch D 338. Thereafter interest runs at the prescribed rate of 8 per annum under s 3 "unless the court otherwise orders". That is because the entry of judgment terminates the bank debt and transforms it into a judgment debt. In the example given the bank would have good grounds for applying to the court under s 2 for an order to fix 15 per cent as the post-judgment interest rate.

I have said in my discussion of principle 2 above that where interest is agreed in a contract it can be included in a default judgment. It does not have to be assessed by a judge. But if the creditor for example, a bank, wants that same rate of interest to run post-judgment he should apply under s 3 of the Act to have it so assessed.

I now apply those principles to the three cases before me.

In the first case Cheong Supermarket Pty Ltd v Pery Muro trading as Gigidu Trade Store (WS 662A of 1986) the claim was for K4,656.30 owing for goods sold and delivered. There was no claim for interest. The default judgment was obtained for that sum, plus "interest to be assessed" and K90 costs. I consider that, as no interest was claimed in the writ, it would not be fair to the defendant to allow it. See my discussion under principle 1 above. That defect was not cured by the actual wording of the default judgment. The notice of motion before me seeks interest at 8 per cent from the date of issue of the writ to the date of judgment and at 8 per cent from the date of judgment to 20 March 1987, the date I heard the motion. The former claim fails as I have said, the latter fails because the interest is automatic. It does not need an order from me to assess it. The applicant has failed completely in this motion and must bear his own costs.

In New Guinea Cocoa (Export) Co Pty Ltd v Kieta Plumbing & Constructions Pty Ltd trading as PNG Hardware Suppliers (WS 108 of 1986) the claim endorsed on the writ was for K9,114.86 moneys owing for goods sold and delivered and a claim for interest at the rate of 8 per cent per annum from 1 November 1985 until payment or judgment pursuant to the Judicial Proceedings (Interest on Debts and Damages) Act. That is a general endorsement of a claim for interest under the Act. I have no evidence on the significance of the date 1 November 1985 mentioned in the writ. Judgment was entered by default for the sum claimed plus interest to be assessed plus costs of K120.

I order interest to run on the debt at the rate of 8 per cent pa from the date of issue of the writ 28 February 1986 to the date of entry of judgment. Thereafter interest runs on the judgment debt plus costs at the rate of 8 per cent per annum and no order is required by me. I grant the costs of this application to the applicant on the District Court scale pursuant to O 22, r 25.

In Intertex Patterns Ltd v Bougainville Enterprises Pty Ltd (WS 33 of 1986) the claim was for the dishonour of two bills of exchange. The particulars of the two bills were:

26 July 1985		
Principal due  	K18,240.16 	
Interest on K18,240.16 from 26.7.1985 to date of issue of writ at 12 pa pursuant to Bills of Exchange Act.  	1,050.00 	
	 K19,290.16 	

24 June 1985		
Principal due  	K15,786.37 	
Interest on K15,786.37 from 24.6.85 to date of issue of writ at 12 pa pursuant to Bills of Exchange Act.  	1,074.33 	
	 K16,860.70 	

This was an attempt at a particular endorsement of interest. I can see no reference to 12 per cent, or to any rate, in the Bills of Exchange Act (Ch No 250). Section 62 seems the relevant section. It provides that damages on a dishonoured bill may include interest and if the bill is expressed to be payable with interest at a given rate "interest as damages may or may not be given at the same rate as interest proper". The two bills of exchange were not quoted from in the writ or annexed to it. I consider that the writ inadequately expressed the details of interest claimed to obtain a default judgment for interest, and that the default judgment was correctly entered for the total of the principal of the two bills K34,026.53 with interest to be assessed. I adjourn this assessment to another day. The applicant will have to satisfy the judge that the 12 per cent was agreed to, presumably by producing the two bills.

Orders accordingly

_________________________

Lawyer for the plaintiff in each action: N S Roberts.